Korea’s household debt set to top $1.4 trillion as borrowing surges
Mortgages and borrowing for stock investment are expected to push household debt past 2 quadrillion won as authorities loosen lending caps for homebuyers.
Bank teller machines are seen in central Seoul on July 12.NEWS1
Korea’s household debt is expected to cross the 2 quadrillion won ($1.4 trillion) threshold for the first time, as mortgage growth and a rise in borrowing to invest in stocks are pushing the country’s already record debt load higher.
The surge is putting financial authorities in a bind and forcing them to curb further debt growth, while ensuring that tighter lending controls do not squeeze borrowers with genuine housing needs.
LEE JEONG-MIN
Household credit hit a new record at the end of the first quarter, standing at slightly over 1.99 quadrillion won, according to the Bank of Korea (BOK). The figure was up 14 trillion won from the previous quarter and just 6.9 trillion won shy of the 2 quadrillion won mark. Household credit, which combines household loans with credit extended by sellers such as credit card purchases, is a key gauge of household debt.
Based on the trajectory of lending trends over the past several months, household credit is expected to have now surpassed 2 quadrillion won. The BOK is set to release preliminary data for the second quarter on Wednesday.
Household loans across the financial sector increased by 21.1 trillion won during the second quarter, according to the Financial Services Commission (FSC). Mortgage loans rose by 14 trillion won, while other loans, including unsecured credit loans, increased by 7.1 trillion won during the same period.
The quality of the growing debt is as much a concern as its sheer size.
“Rather than focusing on the total figure of 2 quadrillion won, we need to look at the composition of the debt that has increased recently,” said Lee Yoon-soo, a professor at Seoul National University’s Graduate School of International Studies. “If unsecured borrowing rises sharply during a stock market rally and share prices subsequently correct, borrowers who took on debt to invest could face heavier repayment burdens, which could also dampen consumption.”
A customer is seen at a bank loan counter in Seoul on Aug. 5.YONHAP
Interest rates and delinquency rates are also rising. The delinquency rate on household loans at banks stood at 0.4 percent in the first quarter, its highest level in more than a decade, according to the BOK. The central bank also raised its benchmark interest rate last month from 2.5 percent to 2.75 percent.
LEE JEONG-MIN
“The problem is polarization,” said Kim Young-ik, an adjunct professor at Hanyang University’s Institute for Future Talent. “When interest rates rise, the interest burden on low-income households and vulnerable borrowers increases, while those with substantial financial assets may actually benefit. That will also increase the burden on fiscal policy to address the disparity.”
While authorities need to rein in household debt, banks are also running up against lending caps, which has led to the restriction of access to loans even for borrowers with genuine financing needs. The problem has become so acute that prospective borrowers have resorted to rushing to apply for loans as soon as applications open.
In response, financial authorities on Thursday raised their target for household loan growth across the financial sector this year from 1.5 percent to 3 percent, which will create roughly 30 trillion won in additional lending capacity.
Apartment complexes are seen from Seoul Sky at Lotte World Tower on Aug. 4.NEWS1
Financial authorities will convene financial institutions on Wednesday to begin discussions on adjusting lending caps for individual firms. As an initial step, group loans, including loans for relocation expenses, interim payments and final payments on housing purchases, will be excluded from financial institutions’ household lending caps.
“A significant portion of the additional 30 trillion won will be used for group loans, while targets for individual financial institutions will also be adjusted based on factors including their previous lending volumes,” an FSC official said.
The lending crunch is also expected to ease somewhat for homebuyers and those seeking to move to another home. The five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — are estimated to gain about 7.5 trillion won in additional mortgage lending capacity this year. The estimate assumes that the banks’ current household loan growth target of 4.34 trillion won will roughly double and that all of the additional capacity will be allocated to mortgages.
Financial authorities, however, plan to ensure that the expanded lending capacity is directed primarily toward borrowers with genuine housing needs to prevent the additional credit from reigniting the real estate market.
BY PARK HYUN-JU, OH HYO-JEONG [kim.jiye@joongang.co.kr]
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
